A Painful Leadership Lesson in Managing Risk

There we were, putting our heart and soul into a bold new startup venture with buckets full of promise. We were all in. The air was electric.

And everything was about to come crashing down.

Our planned new offering was ambitious and pathbreaking. We knew we had our work cut out for us.

The scope and complexity of our product build? Massive.

Our timetable? Insanely aggressive. And with a rock-solid deadline.

What’s more, it required deep, synchronized collaboration across our different departments along with a race to hire the needed talent and get them cracking.

To operate as planned, we’d have to navigate a convoluted, opaque, protracted, and highly politicized government approval process. The rules and regulations varied widely across jurisdictions.

All these factors made our planned launch precarious. Exhilarating, for sure, but daunting. The clock was ticking. We were constantly under the gun. Yet we believed in the product and its potential to do amazing things for our customers.

We suspected that our biggest risks had to do with politics, product development, and tech.

Tick tock, tick tock… Can we build it in time? Will our systems work? Can we get the approvals in time? Tick tock, tick tock…

In the end, we were able to prevail on those fronts via massive focus and attention. The product quality was excellent, the technology worked beautifully, and we navigated the political mazes about as well as could be expected.

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What We Missed

The big surprise was the risk we completely missed: our partner risk.

Our solution required not only our new online service and custom-built tech platform but also significant assistance from a supplier to source and distribute accompanying physical products.

Our supplier had been in business forever. They were experts in planning, logistics, and distribution.

What we hadn’t accounted for was that we were asking them to operate in unfamiliar ways. We needed them to collaborate on our terms and aggressive timetable. It was vastly different from their standard way of operating.

To our surprise, it wasn’t politics or tech but boxes that brought us to our knees.

They couldn’t do it.

As we rolled out our launch in different places, we celebrated the “all systems go” signals with our tech, only to experience a mounting sense of dread as customer complaints about missing and incomplete boxes started rolling in. Then flooding in. And we were powerless to do anything about it. Completely at the mercy of another firm.

Ouch.

Brutal.

The result: irate customers, dejected staff, and damage to our business even though we had done so many other things right under ruthless circumstances. A painful lesson in poor risk management.

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Different Types of Risk

In retrospect, with the luxury of looking at it without white-hot time pressure, we can pause to consider the different types of risk that businesses face:

Competitive risk / Compliance risk / Customer risk / External shock risk (1) / Financial risk / Legal risk / Macroeconomic risk / Operations risk / Partner risk / People/team risk / Political/geopolitical risk / Process risk / Reputation risk / Strategic risk / Systemic risk / Technology/technical risk / Timing risk / User risk

(1) Examples: severe weather impact, pandemic.

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A Process for Managing Risk

During that critical startup period (and beyond), we would have been wise to engage in a simple risk management process. For example:

1. Identify the risks (both internal & external).
2. Assess the probability of the risks.
3. Evaluate the likely impact of the different risks.
4. Prioritize the risks we’ll address (in what order and with what resources).
5. Identify ways to mitigate the risks.
6. Develop and measure key metrics to obtain early warning signs of risks as they emerge and develop.*

A simple probability and impact table could look something like this:

Such an analysis could have placed the logistical issue on our radar because of the severe impact it would have on our customers, operations, and reputation.

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Missing Pieces in Managing Risk

We were a startup venture with strong talent in some areas but weaknesses in other areas. Our culture was hard-charging and focused on growth, scale, and market leadership. All fine, but on the flip side we were light on the finance and operations fronts. And missing leading voices in risk management.

What we needed was a structured way to identify potential problems, along with early identification of possible failure points and system interface conflicts. We had it in some areas but not across the entire business. And we weren’t fully aligned. We had too many silos and lacked lateral awareness across teams.

Our “go big (and fast) or go home” approach worked out in the end, but not before humbling us with major setbacks, including precarious cash crunches. It took a toll on us, from dispirited staff, painful management meetings, and heated customer complaints to lost focus and the risk of lawsuits.

All preventable.

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Reflection Questions

1. How robust is your risk management system?
2. Are you sufficiently prioritizing and pressure-testing it?
3. What more will you do, starting today?

(This article is the first in a three-part series on risk and leadership. Stay tuned for coming articles on “How Leaders Today Should Think About Risk” and “What Leaders Need to Know about Risks and Cognitive Biases.”)

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Tools for You

• Leadership Derailers Assessment?to help you identify what’s inhibiting your leadership effectiveness
• Personal Values Exercise?to help you determine and clarify what’s most important to you
• Alignment Scorecard?to help you assess your organization’s level of alignment

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Appendix: Examples of Risk Management Challenges in Different Areas

Managing Risk in Hiring. A team is hiring for a software development role and focuses on evaluating technical skills. They prioritize candidates with coding abilities and certifications but don’t assess how well candidates align with the company’s shared values and team dynamics. They hire someone who excels technically but lacks the interpersonal and communication skills needed for effective teamwork. The coder lasts five months, with many ups and downs, and then the team is left in the lurch right when things are really heating up.

Managing Risk with Business Growth. A mid-sized manufacturing firm decides to scale its operations aggressively, opening multiple new locations and dramatically increasing its workforce. But it doesn’t invest adequately in systems for managing increased production, supply chain logistics, and customer service. The result? Production delays, quality problems, customer complaints, staff attrition, and a big strain on cash flow.

Managing Risk with Culture Problems. A few executives receive complaints from workers about a toxic work environment in a top-producing division, including instances of harassment and discrimination. The management team downplays the complaints due to uncertainty about how to handle the situation and a fear of legal repercussions, not to mention concern about damaging the company’s bottom line. The result? Workers feel unsupported and undervalued, talented employees resign, recruitment and training costs increase, and the company’s reputation takes a hit.

Managing Risk in Career Paths. An overloaded manager gives a young worker a critical project with high stakes but skimps on resources and guidance. The young worker struggles to meet expectations, gets mediocre results, and starts to check out.?It ends up dampening her once-promising advancement prospects and cratering her job satisfaction.

* Many risk management approaches include risk identification, risk impact assessment, risk prioritization analysis, and risk mitigation planning, implementation, and progress monitoring.

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Gregg Vanourek is a writer, teacher, and TEDx speaker on leadership and personal development. He is co-author of three books, including?Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a winner of the International Book Awards written with his father, Bob Vanourek). If you found value in this, please forward it to a friend. Every little bit helps!

(A version of this article first appeared on the Triple Crown Leadership blog.)